According to the Bank of Luxembourg''s quarterly report, the euro zone should expect to experience a subdued recovery in the wake of the worst recession since World War II. This announcement comes in contrast to previous recoveries following financial crises.
The Bank of Luxembourg said that "GDP growth in the euro zone should remain moderate compared to previous recoveries, as both the public and the private sectors need to mend their balance sheets."
It added that limited wage growth as well as debt reduction measures implemented by euro zone members, drawn up to cut public deficits inflated by stimulus plans during the global recession, will also put a lid on the recovery.
Euro zone growth should also slow further in the second part of 2010, as the global trade and inventory building which fuelled the region''s recovery in the first half of the year, become less dynamic and as states begin withdrawing stimulus measures. However, Euro zone gross domestic product grew 1% in the second quarter, more than expected.
The Bank of Luxembourg followed the European Central Bank''s pledge last week that their unconventional liquidity measures would be maintained until at least January 2011.